The last two or three years has seen an increase in the number of contractors who have come out of umbrella companies to set up their own limited companies. If a contractor is seriously thinking of setting up a limited company, it is good to try and understand the advantages and disadvantages of starting a limited company and the responsibilities and administrative duties that are required of the business owner in running the company.
Set Up A limited Company
The process of setting up a limited company online is very simple. All that is required to be provided are details including your name, your current address, your place of birth and the name for the proposed company. There are three steps that are required to form a limited company:
Step 1: Choosing a Name
Choose a name for the proposed limited company that you want to form. If choosing a name is difficult, there are many free name guides available that can be of help in choosing the right name for the company.
Step 2: Forming the Limited Company
The company can be formed online in a matter of three hours. The following services are provided on payment of a registration fee:
- Setting up a bank account for the company, VAT and PAYE registrations
- Expert advice for the best share structure for the limited company, and
- Other legal advice required for operating a limited company.
However, one should be wary of registrations that come very cheap. They may not provide enough support.
Step 3: Appointing an Accountant
It is a good idea to appoint an accountant to take care of all the formalities with regard to HMRC. Taxation issues are simplified and this act saves the business owner both time and stress. Tax penalties that are charged on late payment of taxes can also be avoided.
Advantages of a Limited Company
- As much as 80 percent of the contract value can be taken home as pay. Working for an umbrella company means less pay.
- The business owner can claim tax benefits on a wide range of expenses.
- The business owner of a limited company is entitled to a flat rate VAT scheme.
- The personal assets of a limited company owner are considered as a separate entity from the business. They cannot be attached in the event of failure of the limited company.
- A limited company business owner keeps complete control of all the financial affairs of the company.
- A limited company has more credibility than non-limited companies.
- No one else can use the name of a limited company.
Disadvantages of a Limited Company
- A basic amount of paperwork is involved in running a limited company.
- Account statements have to be filed every year.
- Limited companies are most suited for long-term contracts. They are expensive for short-term contracts.